City of Miami officials, facing possible civil charges from the U.S. Securities and Exchange Commission for allegedly misleading investors in advance of two bond issues, have offered to settle the case.
Their pitch to the SEC, according to a letter obtained by the Miami Herald late Wednesday: Publish a letter reprimanding the city for making millions of dollars in questionable budget transfers in 2007 and 2008. As part of the proposal, the city also said it would consider restructuring its finance department and creating more detailed procedures for budget transfers.
The city’s offer did not include any fines, something the SEC has threatened.
It was not clear if the SEC was willing to accept the city’s terms. SEC Regional Director Eric Bustillo declined to comment.
Last month, after a 32-month investigation, the SEC concluded that Miami had fleeced potential investors by making the city’s finances seem better than they were.
City officials responded with the letter this week, saying they hoped to avoid a protracted legal fight.
“We believe that the settlement offer outlined below… is a fair result in a case with as many challenges as this one,” outside attorney Ivan Harris wrote.
The settlement proposal included a 41-page position paper that was drafted last summer, but never released to the public. In the memo, Miami officials argued they had not violated any generally accepted accounting principals when they moved about $30 million from the budget for capital projects into the general fund.
“Indeed, the Government Accounting Standards Board expressly recognizes that government entities can transfer balances from their capital funds to their general funds, particularly in times of financial crisis,” they wrote.
The position paper also noted that Miami budget managers had made no attempt to hide the transfers, which were “widely discussed in newspaper articles and a report issued by the city’s independent auditor general.”
Commission Vice Chairman Marc Sarnoff said that the argument was strong enough to merit fighting any potential charges.
“Should we fight the SEC? We should,” said Sarnoff, an attorney who sat on the commission when the budget transfers were made. “They are holding us standards that nobody else is held to. It is almost discriminatory.”
The SEC began its investigation in 2009, after the Herald disclosed that city budget managers had transferred millions of dollars earmarked for capital projects into the general fund. At the time, city budget officials justified the move by saying the projects were no longer needed.
But the SEC said the transfer gave the appearance of a balanced budget just before a pair of bond issues. The agency also alleged the transfers had not been fully disclosed to potential investors.
Last month, the SEC notified Miami it may file a lawsuit seeking civil fines or pursue a cease-and-desist order against the city to stop the transfer of funds.
The SEC sent a similar letter to former city budget director Michael Boudreaux, his attorney confirmed. It was not clear if any other city employees had been targeted in the investigation, but the position paper indicates the SEC was considering charges against former Miami finance director Diana Gomez.
When reached by a Herald reporter late Wednesday, Gomez would not say if she had received a letter from the SEC.